CATEGORIES TO BE COVERED - JD Supra State and Local Taxation: Headline News and Trends April 28, 2015 State and Local Taxation: Headline News and Trends April 28, 2015 Presented by

State and Local Taxation:Headline News and TrendsApril 28, 2015

State and Local Taxation:Headline News and Trends

April 28, 2015

Presented by David A. [email protected]

Ph: 646.681.2268 Fax: 800.930.7271

CATEGORIES TO BE COVERED

Megatrends and Developments

Business Activity Taxes

Transaction Taxes

2

Other Issues


3

MEGATRENDS AND DEVELOPMENTSU.S. Supreme Court

Maryland State Comptroller of the Treasury v. Brian Wynne

Oral argument held on November 12, 2014

MEGATRENDS AND DEVELOPMENTS

4

U.S. Supreme Court

Direct Marketing Association v. BrohlDMA wins. Direct marketers lose? 135 S.Ct. 1124 (March 3, 2015)


5

MEGATRENDS AND DEVELOPMENTSU.S. Supreme Court

Colorado Click-Through Nexus

Direct Marketing Association v. Brohl

On April 13, 2015 the 10th Circuit Court

of Appeals vacated its earlier decision

holding against DMA. The court has

ordered the parties to brief Commerce

Clause, comity and “and any other

issues the parties consider pertinent.”


6

U.S. Supreme Court

Ala. Dep’t. Rev. v. CSX Transportation, Inc. Alabama wins.

135 S.Ct. 1136 (March 4, 2015)Ct. App. Orders rebriefing (April 15, 2015).



Tax PresenceOverall theme: Borders matter less than ever…But there are some taxpayer wins

7

8

MEGATRENDS AND DEVELOPMENTSNexus -- Federal Action: “One if by Litigation, Two if By Legislation”?

Message to those fighting collecting tax on remote sales:

“The light at the end of the tunnel…

is a train coming down the tracks.”


9


Marketplace Fairness Legislation

*

Legislation


10

States With Some Type of Click-Through Nexus:

Click-Through Nexus States

PENNSYLVANIA (DOR Position)

RHODE ISLAND

SOUTH CAROLINA

SOUTH DAKOTA

TEXAS

VERMONT

ARKANSAS

CALIFORNIA

COLORADO

CONNECTICUT

GEORGIA

ILLINOIS

KANSAS

MAINE

MINNESOTA

MISSOURI

NEW JERSEY

NEW YORK

NORTH CAROLINA

OKLAHOMA


11

MEGATRENDS AND DEVELOPMENTSState Nexus Legislation

South Dakota

South Dakota HB 1001, signed into law

on February 19, 2015, permits direct

shipments of wine if the shipper

registers with the DOR. Registration

(purportedly) required even if shipper

lacks tax presence in South Dakota.


12

State Nexus Legislation

New York

New York Gov. Cuomo proposes

tax collection obligations for

on-line marketplaces. “A big

deal,” per NYS Budget Division.

*


13

MEGATRENDS AND DEVELOPMENTSState Nexus Litigation

Ohio

Ohio Board of Tax Appeals. In

three decisions involving the

Commercial Activity Tax, the

BTA found tax presence despite

lack of physical presence.

*


14

Federal Legislation

• Internet Tax Freedom Forever Act. Reintroduced February 10, 2015 as S. 431 (See also H.R. 235 (Introduced January 9, 2015))

• Digital Goods and Service Tax Fairness Act of 2015 (S. 851) (Introduced March 24, 2015)


15

MEGATRENDS AND DEVELOPMENTSFederal Legislation

Mobile Workforce State Income Tax

Simplification Act (S. 386) introduced

on February 5, 2015. Proposes a 30-

day nontaxability period for employees

working outside of their home state.

In May, 2012 the House of Representatives passed a bill with identical language.

16

PRIVATE LAWSUITS. CHOOSE YOUR POISON?

- Vendor UndercollectionSuit by private lawyers under state False Claims Acts (“qui tam actions”) seeking reward of 15% to 30% of the state’s recovery

- Vendor OvercollectionSuit by private lawyers in class action refund claims

Vendors and the states hate this use

of the False Claims Acts and class

actions.

MEGATRENDS AND DEVELOPMENTSQui Tam and Class Actions



17

Qui Tam and Class Actions – Case Developments

*

Illinois & Florida

Case dismissal and denial of qui

tam award upheld:

• State of Illinois ex rel. Schad

Diamond and Shedden P.C. v.

QVC, Inc.

Florida case settled:

• Schojan v. Papa Johns

International, Inc.

18

MEGATRENDS AND DEVELOPMENTSQui Tam and Class Actions – New Cases

• Wong v. Whole Foods Market Group, Inc.

• Wong v. Target Corporation

*



19

Qui Tam and Class Actions – State Legislation

Several bills pending in Illinois.

20


The Multistate Tax Commission has organized a working group of

practitioners and state officials to address this issue

Qui Tam and Class Actions: MTC Working Group



21

“Tax Haven” Legislation: Say Goodbye to This…?

22

MEGATRENDS AND DEVELOPMENTS“Tax Haven” Legislation: …And Goodbye to This, Too?


BUSINESS ACTIVITY TAXES

23

Litigation

MississipiState Chancery Court holds the state’s

dividend received deduction

unconstitutional because it was limited

to dividends received from affiliates

doing business and filing income tax

returns in Mississippi. Involves years

1997-1999 and an assessment issued

in 2003. AT&T Corp. v. Miss. Dep’t

Rev., No. 25CH1:04-cv-001393 (March

20, 2015).

24

BUSINESS ACTIVITY TAXESMultistate Tax Compact: Litigation Update

Michigan. 1. Legislation; 2. Litigation (a) MBTA (b)

SBT. Emco Enterprises, Inc. v. Dep’t. Treas.,

Ct. Claims No. 12-000152-MT (4/21/15)

Texas. Graphic Packaging Corporation v.

Comptroller of Public Accounts (Ct.

App. No. 03-14-00197-CV). Oral argument scheduled for June 3, 2015

Oregon. Health Net Inc. and Subs v. Dept. of Rev. Oral arguments on cross motions for summary judgment held on July 22, 2014.

Minnesota. Kimberley-Clark Corp. et al. v. Comm.

(Tax Ct. Doc. 8670-R) (12/12/13). Oral argument heard on March 19, 2015

California. Gillette Company v. FTB, Ca. S. Ct. Fully Briefed. Oral argument was expected in 2014, and now in 2015, but has not yet been scheduled.



25

Unitary Businesses/Tax Presence

Maryland

ConAgra Brands, Inc. v. Comptroller,

Maryland Tax Court No. 09-IN-OO-

0150 (2/24/15).

26

BUSINESS ACTIVITY TAXESUnitary Businesses/Retroactivity

Oregon

Department of Revenue v. Rent-A-Center,

Inc., TC 5224 (1/26/15).



27

Apportionment

Pennsylvania

Important Notice Corporate Taxes

2014-01 (December 12, 2014)

regarding apportionment of sales of

services was criticized by PA. Institute

of CPAs in a March 24, 2015 letter to

the DOR (Notice is “impractical,”

“confusing,” and needs “clarification.” )

28

BUSINESS ACTIVITY TAXESAmnesty/Revenue Issues

Massachusetts

Amnesty collections for March, 2015

were predicted to be $3.6 million, but

were only $163,000. Amnesty remains

open through May 15, 2015.



29

Revenue Issues

Minnesota

On Nov. 4, 2014, Minnesota’s Solicitor

General filed a Memorandum of Law

with the State’s Tax Court alleging that

a ruling for the taxpayer in Kimberly-

Clark would cost the state $700 million.

(Actual claims are $150M.) This is not

a proper basis for deciding the

case…Then on Feb. 27, 2015, the

Minnesota Management and Budget

Office announced that the state had a

$2 billion budget surplus.

→ Under the circumstances, let’s hope

this means that the case will be

decided on its merits.

30

BUSINESS ACTIVITY TAXESRevenue Issues

Wisconsin

Announced a desire to hire an

additional 102 corporate tax auditors.

Executive Budget released 2/3/15.



31

Legislation and Guidance

New York State

New York State’s corporation tax system overhaul became effective January 1, 2015.

(See our prior coverage in the May 28, 2014 Headline News and Developments, slides 24-28, available at https://rimon.egnyte.com/h-s/20140530/qfBiSqueAq).)

32

BUSINESS ACTIVITY TAXESLegislation

New York CityRetroactive to January 1, 2015, NYC

corporate tax conforms to many of

the changes to NYS’s corporate tax

system. S. 4610, signed into law

April 13, 2015. Title 11, Ch. 6, subch

3-A.


33

Mark your calendars:

• The next “State and Local Taxation: Headline News

And Trends” is scheduled for

September 10, 2015 (11:00 a.m. Eastern)

• Please send me a LinkedIn connection request to

be sure that you receive the invitation.

34

TRANSACTION TAXESSales Tax on Services

Pennsylvania

Pennsylvania Gov. Wolf proposes an

expansion of the sales tax. On March

18, 2015, Pa. DOR issued a memo

identifying goods and services that

newly will be subject to sales tax.

Includes investment advisory, real

estate agent and brokerage, nursing

and rehabilitative care, accounting and

legal services.


TRANSACTION TAXES

35

Sales Tax on Services

CaliforniaSB 8 proposes taxing retail sales of

services when the benefit is received

in California. In an April 14, 2015

report, the SBE estimates potential

tax revenue as $122 billion in 2016

alone. Put in context: On April 16,

2015 the U.S. Census Bureau

reported that in 2014 the 50 states

collected $866B from all taxes.

36

TRANSACTION TAXESLegislation

h

Idaho

Law clarifying that subscription and

streaming services are not subject to

sales tax on digital goods signed on

March 30, 2015, and takes effect April

1, 2015. HB 209.

*


37

TAXING THE CLOUD

38

CLOUD COMMERCE

"Cloud" can be defined as "Services that

allow customers to access and use

computer software, servers, operating

systems, databases, and other computing

and storage resources via the Internet."

Definition


CLOUD COMMERCE

39

Administrative Rulings and Pronouncements

image courtesy of atomhawk.deviantart.com

*

40

TRANSACTION TAXES

Hotel Occupancy TaxesEndless litigation across the country.

Recent Cases

*

Hawaii Maryland

District of Columbia Texas

San Francisco Montana

Chicago


41

OTHER ISSUESDerivative Liability

California

Purchaser of property was

responsible for its predecessor

entities’ unpaid taxes and penalties -

-$570,000. Recession was not

reasonable cause. And price

purchaser paid should have taken

into account these unpaid liabilities.

*

OTHER ISSUES

42

Derivative Liability

Ohio

Taxpayer was not a responsible

party. Taxpayer proved that she

resigned as an officer prior to the

periods at issue. Taxpayer also

proved that during the periods at

issue she was an independent

contractor rather than an employee.

*


43

OTHER ISSUESNondischargeability in Bankruptcy

Massachusetts

Bankruptcy did not discharge unpaid

state income tax liability as taxpayer

failed to comply with tax return filing

requirements.

*

OTHER ISSUES

44

Procedures

New Mexico

On April 7, 2015, New Mexico

enacted a law establishing a hearing

process for tax disputes that is

independent of the Department of

Finance of Administration and the

Taxation and Revenue Department.

SB 356.


45

OTHER ISSUESTax or Fee?

IllinoisIllinois Supreme Court holds that a

nursing home license fee was a valid

tax (January 23, 2015).

*

OTHER ISSUES

46

Tax or Fee?

IdahoIdaho Supreme Court rules that a

sewer connection fee was an

impermissible tax (February 26, 2015).

*


47

OTHER ISSUESTax or Fee?

California

Water pumping fees are not

taxes and are valid.

*

OTHER ISSUES

48

Tax or Fee?

CaliforniaJune, 2015 hearing on requested

class certification in challenge to

rural fire fee as an invalid tax.

Howard Jarvis Taxpayers Ass'n v.

Dep't of Forestry and Fire Prot.;

Case No. 34-2012-00133197-CU-

WM-GDS. See also S.B 520

proposing repeal of the fee/tax.


49

OTHER ISSUESRetroactivity

Florida

Right to property tax exemption was

vested on January 1 of the tax year.

Subsequent repeal of exemption did

not deprive property owner of its

vested exemption.

*

OTHER ISSUES

50

Virtual Currency

Washington

DOR Tax Topic “Accepting

virtual currency as payment for

goods or services” (published

January 28, 2015).


51

OTHER ISSUESVirtual Currency

New Jersey

NJ conforms to IRS Notice

2014-21 (Technical Advisory

Memorandum 2015-1 (Issued

March 10, 2015)).

52

Questions????


53

David Fruchtman, Chair, Rimon P.C.'s State and Local (Subnational) Tax Practice

[email protected]

(646) 681-2268

Has advised clients regarding taxes in all 50 states.

For Mr. Fruchtman's complete biography and links to more than

30 of his articles, outlines and newsletters, please go to

www.rimonlaw.com

54

NOTES

SLIDE 9

Marketplace Fairness Legislation

• Senate Passed as S. 743 on May 6, 2013

• House has assigned its version (H.R. 684) to the Judiciary Committee.

• September 18, 2013 Judiciary Committee released its seven “Principles on Internet Sales Tax”

• Tax Relief; Tax Neutrality; No Regulation without Representation; Simplicity; Tax Competition;

States’ Rights; Privacy Rights.

• SSTGB has engaged a lobbyist (April 2014)

• Efforts to to tie the MFA to the Internet Tax Freedom Act” were unsuccessful.

• Marketplace Fairness Act. Reintroduced March 10, 2015 as S. 698). Rep. Goodlatte alternative

proposal (origin-based) panned by MTC and others.

SLIDE 12

See 2015-2016 New York State Executive Budget Revenue Article VII Legislation, Part X, "Revenue

Bill," at 220-225).


NOTES

55

.

SLIDE 18

• Whole Foods: No. 1:15-cv-00848 (U.S. Dist. Ct. No. Dist. IL.);

• Target: No. 1:15-cv-01985 (U.S. Dist. Ct. No. Dist. IL.))

SLIDE 17

QVC: 2015 IL App (1st) 132999 No. 1-13-2999 (March 31, 2015).)

Papa John’s: U.S. Dist. Ct. Mid. Dist. FL., Case No. 8:14-cv-1218-T-33MAP

SLIDE 13

Newegg, Inc. v. Testa, No. 2012-234 (2/26/15); Crutchfield, Inc. v. Testa, Nos. 2012-926, 2012-3068

and 2013-2021 (2/26/15); Mason Companies, Inc. v. Testa, Nos. 2012-1169 and 2012-2806 (4/20/15)

SLIDE 39• Colorado General Information Letter GIL-15-003 (January 27, 2015)

• Missouri Letter Ruling LR 7503 (February 2, 2015)

• Kansas Private Letter Ruling P-2015-001 (March 12, 2015)

56

NOTES

• On January 28, 2015, Airbnb announced that it would begin collecting and remitting hotel occupancy

taxes in Chicago and the District of Columbia.

• On February 20, 2015, announced that it paid “in full” a liability for San Francisco hotel taxes

reaching into the millions of dollars.

• On March 17, 2015, the Hawaii Supreme Court ruled that on-line travel companies owed “up to tens

of millions in back taxes to the State of Hawaii” (quote from the Attorney General’s press release of

the same date). The Court also ruled that the travel companies were not liable for transient

accommodations tax – an exposure that reached hundreds millions of dollars.

• On April 3, 23015 the Montana Department of Revenue filed its opening brief at the state Supreme

Court in Montana v. Priceline.com (Cause No. DA 14-0260)

• On April 8, 2015, Maryland’s General Assembly approved legislation (S.B. 190 and H.B. 1065)

requiring online travel companies to pay the state’s six percent sales tax on the full amount they

charge customers. The OTCs currently argue that they are liable for hotel tax, if at all, only on the

price they pay to the hotels.

SLIDE 40


57

NOTES

SLIDE 41Ashlan Park LLC v. Crow, Calif. Ct. App. F069221 (2/2/15)

SLIDE 42Kingery v. Testa, Case Nos. 2012-887 through 890 (1/27/15).

SLIDE 43

Fahey v. Massachusetts Department of Revenue, U.S. Dist. Ct. Mass. No 14-1328 (February 18, 2015).

.

SLIDE 45

Grand Chapter, Order of the Eastern Star of the State of Illinois v. Topinka, 2015 IL 117083 (IL. S. Ct.

January 23, 2015).

SLIDE 46

North Idaho Building Contractors Association v. City of Hayden, 2015 Opinion No. 19 (ID. S. Ct.

2/26/15).

58

NOTES

SLIDE 47

City of Buenaventura v. United Water Conservation District, B251810 (Ca. Ct. App. 2nd App. Dist. as

modified April 15, 2015).

SLIDE 49

Stranburg v. Panama Commons L.P., Case No. 1D14-1671 (Dist. Ct. App. 1st Dist. April 8, 2015).


59

This presentation and these materials address recent state and local tax

developments. Because of its generality, the information provided herein

may not be applicable in all situations and should not be acted upon without

specific legal advice based on particular situations. Neither participation in

this presentation nor receipt of these materials establishes an attorney-client

relationship.

Also, to ensure compliance with requirements imposed by the IRS, Rimon

P.C. informs you that, if any advice concerning one or more U.S. federal tax

issues is contained in this publication, such advice is not intended or written

to be used, and cannot be used, for the purpose of (i) avoiding penalties

under the Internal Revenue Code or (ii) promoting, marketing, or

recommending to another party any transaction or matter addressed herein.

Documents

CATEGORIES TO BE COVERED - JD Supra State and Local Taxation: Headline News and Trends April 28, 2015 State and Local Taxation: Headline News and Trends April 28, 2015 Presented by